Mexico: little growth in 2025 but good long-term potential

The overall level of GDP at market exchange rates is only 6% of the size of the US. At PPP rates, GDP per head is 29% of the US level. A growing population over the next 25 years is forecast by the UN, with the share in the 15-64 age group staying at around two thirds. These demographic trends will support longer-term economic growth potential, which we se as almost 2% p.a. over the next fifteen years.

GDP growth rebounded in Q2 after a weak first quarter. The major uncertainty for 2025 relates to US tariff changes. The IMF's latest forecast sees a small expansion in GDP in 2025 followed by a stronger rate of growth in 2026.

Core inflation is (just above) the top of the 2-4% target range.

Mexico has a low level of CO2e emissions per head but is not on track for net zero by 2050.

The level of government debt (61% of GDP) is not particularly high and is broadly sustainable in the sense that it is expected to rise very marginally over the next five years.

The policy interest rate has been cut to 7.25% (see chart) but still looks too high, given inflation and growth trends.

Mexico is still mired in corruption. Competitiveness and innovation measures are not great; but Mexico is a relatively free economy.